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Toll Brothers (TOL) Ties Up With The Davis Companies in Arizona

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Toll Brothers Inc.’s (TOL - Free Report) rental subsidiary Toll Brothers Apartment Living recently teamed up with The Davis Companies, real estate investment firm. Through this joint venture, the companies will build and develop Callia, a 403-multi-dwelling rental unit, in Phoenix, AZ.

Callia is situated on an 8.2-acre area at Central Avenue and Indian School Road in the neighborhood of Phoenix. This multi-family rental community is located in close proximity to Valley Metro light-rail stop and is in walking distance to exclusive restaurants, grocers, retail outlets, and office premises.

The project is financed through a $66-million construction loan. The debt and equity were arranged by Toll Brothers’ internal accounting department. The entire management, development, marketing and asset of Callia will be superintended by Toll Brothers.

With respect to this, Charles Elliott, president of Toll Brothers Apartment Living, stated, “We’re thrilled to expand our Toll Brothers Apartment Living presence in Phoenix and surrounding areas in Arizona. The market has seen significant employer growth bringing in transformative developments to the area.”

Strong Land Positions & Favorable Housing Market Drive Growth

Lately, the demand for new homes has seen V-shaped recovery throughout the country and Toll Brothers has also benefitted from the same. It has procured some of the most sought-after urban locations in the country, where land is scarce and approvals are not easy to obtain.

The company has been expanding geographically via selective collaborations and acquisitions. With the help of a strong liquidity position, it has been able to secure the most sought-after urban locations like New York City Market, Northern New Jersey, Washington DC and Philadelphia. Consequently, it is gaining a competitive edge over peers who are presently facing limitations in land availability.

The company mostly caters to luxury move-up buyers, who already possess a residence and are looking for a shift to larger and better homes. Simultaneously, Toll Brothers is tactically adding more affordable luxury communities in view of the current demographic trends, and expanding footprint and customer base. These communities are expected to be more capital efficient.

Price Performance

Shares of the company have gained 25.3% in the past six months compared with the Zacks Building Products - Home Builders industry’s 11.9% growth. The upside is likely to continue, given robust demand owing to solid U.S. housing market fundamentals and lack of competition in the luxury new home market and buyout synergies.

Owing to favorable housing market fundamentals, net signed contracts during first-quarter fiscal 2021 was 2,874 units, up 59.1% year over year. The value of net signed contracts was $2.51 billion.

Zacks Rank & Other Key Picks

Currently, Toll Brothers carries a Zacks Rank #2 (Buy).

Other top-ranked stocks in the same industry include KB Home (KBH - Free Report) , Lennar Corporation (LEN - Free Report) and Century Communities, Inc. (CCS - Free Report) , each carrying a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

KB Homes and Lennar’s earnings for fiscal 2021 are expected to rise 74.8% and 39.9%, respectively. Century Communities’ earnings for 2021 are expected to grow 33.8%.

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